Among the auto-component makers, Chennai-based WABCO-TVS Ltd’s shares have shot up 13% in the last four trading sessions to Rs 730 on the BSE.
The company’s announcement of a tie-up with Mahindra-Navistar Automobiles to supply air-compressor technology braking systems sparked investor interest in the stock. According to industry sources, the Mahindra Navistar entity is expected to make commercial vehicles (CVs) , with production of around 10,000-12,000 units in 2010-11, with an installed capacity to make about 50,000 vehicles per annum.
WABCO-TVS was a joint venture between German auto component major WABCO and Indian TVS group until June 2009, when TVS sold its holding to WABCO, which now holds a 75% stake. The company commands around 85% of the market share in air compression related braking systems in the CV market. It caters to the original equipment (OE) requirements of Tata Motors Ltd. and Ashok Leyland Ltd in the medium and heavy duty CV space.
Like most industry peers, WABCO too has registered phenomenal growth in the last two quarters on the back of the uptrend in the auto sector. In fact, during the 2009 quarter, sales grew by 120% to Rs 169 crore, with a multi-fold jump in net profit to Rs 24 crore over the year-ago period. Decrease in employee and interest costs during the period trickled down into better operating and net profit margins at 23% and 9% of sales respectively.
The cumulative sales for nine months ended December’09 was around Rs 410 crore, with a net profit of around Rs 51 crore. The equity capital is around Rs 9.5 crore. Analysts’ estimates are that the company will post earnings per share of around Rs 40 in 2009-10 and Rs 50 in 2010-11.
While the mid-cap stock has poor liquidity on the bourses, it would command a relatively higher price-earnings multiple than its peers at any given time. That’s because the parent company is a leader in the European auto-component space-hence access to future technology is not an area of concern. Also, entry barriers in the braking systems are very high with little competition even from the unorganised segment on account of the safety aspect of the product.